A small uptick in Australian consumer confidence recorded in July is at serious risk of being erased by a new wave of rising fuel costs, shifting global oil market dynamics and looming interest rate changes, new economic surveys have revealed.
The closely watched Westpac-Melbourne Institute Consumer Sentiment Index registered a 4.1% improvement between June and July, pushing the overall reading to 83.9 points. Despite this month-on-month gain, the index remains firmly in negative territory – any score below 100 signals a majority of consumers hold pessimistic views about the future, and the current reading sits near 50-year record lows.
Matthew Hassan, Westpac’s head of Australian macro-forecasting, explained that the modest July improvement stemmed largely from consumers breathing a sigh of relief after worst-case economic scenarios – including extreme energy price spikes, aggressive interest rate hikes and widespread job losses – failed to materialize. “Some of the July improvement looks to be relief that ‘worst-case’ scenarios – around energy prices, interest rates and jobs – are not playing out,” he noted, adding that “however, family finances are clearly under intense pressure and the outlook is uncertain.”
The temporary drop in national fuel prices was the single largest driver of the confidence bump. During the survey period, average retail petrol prices across Australia fell to $1.60 per litre, fully reversing the price surge triggered by the outbreak of conflict in the Middle East earlier this year. Consumers also reported slightly less anxiety about their personal financial outlook over the coming 12 months and growing confidence in job security, with Hassan adding that “while they are still downbeat on the economy, consumers are more comfortable about the labour market outlook.”
Even with these small gains, consumer willingness to make large discretionary purchases remains stagnant: the subindex tracking attitudes toward buying major household goods held broadly steady at depressed levels, indicating households are still holding back on big spending.
Crucially, the positive fuel price trend that supported the July gain was already reversed just days after the survey concluded. Global oil prices jumped 15% in the following days, climbing above $US84 per barrel, and new pressures are set to push pump prices even higher in the coming months. AMP economist My Bui projected that the confidence uptick will almost certainly be wiped out in next month’s reading, as the temporary benefits of stable interest rates and lower fuel prices fade. “Fuel prices look to increase further throughout July and August with the reintroduction of fuel excise and higher global oil prices, while we think the Reserve Bank has a high chance of raising the cash rate in August,” she explained.
Geopolitical instability is adding extra uncertainty to the outlook. Hassan warned that consumer sentiment remains highly vulnerable to developments in the Middle East, noting that “sentiment also remains hostage to developments abroad, with daily responses showing a significant weakening as the situation in the Strait of Hormuz deteriorated over the course of the survey week.”
In contrast to the gloomy household outlook, separate data from National Australia Bank (NAB) shows Australian business confidence has staged a notable recovery in recent months. The NAB Monthly Business Survey recorded a 9-point rise in business confidence in June, bringing the index to -5 points. While confidence still remains in negative territory, the reading marks a major rebound from the sharp drop recorded in March amid escalating Middle East tensions. Business conditions held steady at +3 points for the third consecutive month, matching earlier stable readings.
NAB chief economist Sally Auld explained that fading fears over the economic impact of Middle East conflict and easing cost pressures have driven the uptick in business sentiment. “Business confidence has now recovered much of the sharp decline we saw in March, reflecting some easing of concerns around energy markets and as broader geopolitical risks have tempered,” she said.
Auld added that businesses are reporting lower-than-expected inflation expectations tied to Middle East tensions, alongside improving profitability and broadly stable trading conditions. From a policy perspective, the survey offers encouraging signals for inflation management: the sharp spike in input cost growth recorded in March has largely reversed, and price increases have moderated across most Australian industries. “Labour costs remain elevated and margins are still under pressure, but the broader trend is toward easing capacity constraints and more moderate price growth,” Auld noted.